Taxpayer-backed Royal Bank of Scotland has dropped back into the red during the first half of its year after taking another £1.3bn hit for banking scandal fines and warned of more charges to come.
STATE-owned Royal Bank of Scotland reported an unexpected attributable profit in the second quarter following the recovery of problem loans, boosting the group ahead of the first sale of taxpayers’ shares.
An RBS share sale, following successive disposals of Government holdings in Lloyds, would mark a major milestone in Britain’s recovery since the 2007-2009 financial crisis and could contribute billions of pounds to state coffers.
Chancellor George Osborne said earlier this month that the Treasury plans to sell at least three-quarters of its 78 per cent stake over the next five years and he is keen to kick off the process as soon as possible.
An initial sale to financial institutions, which will be at a loss on the average 502p per share price the Government originally paid, is possible in the next few days, but is more likely to happen in September.
Chief executive Ross McEwan said: “The bank is in much better shape than it was even 12 months ago and it’s given the Government the confidence to say this is a bank that we can start selling off. The timing itself is up to the Government.”
RBS reported a profit of £293m in the second quarter, up 27 per cent on the year before, as economic recovery enabled it to recover loans that had been written off. Analysts had expected a loss of £260m.
The bank plans to return capital to shareholders by paying dividends or buying back shares, but will not be in a position to do so until the first quarter of 2017 at the earliest.
Some analysts had expected a dividend next year.
Finance director Ewen Stevenson said: “There were some analysts out there with expectations of capital distributions in 2016. We felt it was important to be transparent and to ground people in what we think is a realistic expectation.”
Mr McEwan is battling to turn around the bank, whose reputation has been hit by a number of scandals since it was rescued by the Government at a cost of £45.8bn to taxpayers.
He said in February that RBS will dramatically shrink its investment banking operations and would pull out of 25 countries across Europe, Asia and the Middle East to refocus on Britain.
It took a charge of over £1bn during the quarter to cover the cost of the restructuring.
The bank is hoping to clear a number of hurdles before returning capital, including impending settlements with authorities in the US over claims it misled investors in mortgage-backed securities.
So far, the bank has set aside £2.1bn to deal with the matter, but some analysts believe the final bill could be much higher. Mr Stevenson said RBS has not yet entered discussions with US authorities, suggesting that settlements are not imminent.
The bank said it had also set aside £459m in the second quarter to deal with conduct and litigation issues, mainly to bump up its provisions for the mortgage-backed securities settlements.
Analyst Gary Greenwood at Shore Capital said: “RBS has reported better than expected second quarter/first half results to June 30.
“Overall, this is a positive set of results which demonstrate further good progress in reshaping the business and which we expect will be well received by the market.”
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, added: “In true RBS fashion, these results are a mixed bag, although the initial reaction to the numbers is positive.
“The bank has swung to an unexpected profit for the quarter, albeit a loss for the half year, with anticipated cost reductions on track accompanied by a further strengthening of the capital cushion position.“
Mr Hunter said that contributions from the Personal & Business and Commercial & Private Banking units were pleasing, with the rundown of the “bad” bank continuing swiftly.
“Even so, a number of clouds remain, not least of which are the costs arising from litigation and conduct fines, the continuing unwelcome Government stake and a sharp hike in restructuring costs given the accelerated programme the bank is undertaking,” he added.